Investors bet on European stocks to rise next year as recession fears ease, BofA says

The outlook for European equities is becoming increasingly optimistic as fears of recession ease, according to Bank of America Corp's latest survey of fund managers, which expect European stocks to rise in the coming year.

While most investors predict European stocks to fall in the coming months as a result of monetary tightening, fading bets that the economy will fall into recession next year have led to a growing number of more optimistic views on stocks in the medium term, BofA strategists led by Andreas Bruckner said in a note.

Investors are not yet fully bearish. The survey showed that investor positions are largely defensive, with pharmaceuticals overtaking technology stocks as the sector with the most overweight in Europe, and utilities coming in third as investors avoid sectors that are more sensitive to economic cycles.

This year's rally in European stocks largely stalled over the summer as the European Central Bank persisted in its efforts to curb inflation through a series of rate hikes.

The risk of excessive rate hikes remains, which could lead the economy into a recession. The Stoxx 600 index is up 7.5% so far this year.

Investors' concerns about economic growth were evident in the Bank of America survey, with 89% of respondents expecting a further slowdown in Europe's growth momentum over the next six months.

All eyes are on the interest rate decision made by the European Central Bank this Thursday to see if policymakers will indeed raise rates again or shift into wait-and-see mode.

Concerns about the outlook for Asia's major economies have prompted investors to shift their equity allocations from emerging markets to the U.S., according to a survey by Bank of America.

Separately, Goldman Sachs strategists noted that negative economic momentum has pressured European assets in recent weeks, with much of the stock market's weak performance coming from the luxury goods sector.